San Bernardino officials back away from corruption charges

San Bernardino officials -- from city hall to law enforcement -- are distancing themselves from City Attorney James Penman's statements last week that financial documents had been falsified in at least 13 of the last 16 years, making it appear the city was in rosier condition.

As San Bernardino headed toward bankruptcy, Penman alluded to investigations by the police department as well as the San Bernardino County Sheriff's Department and the District Attorney's Office. But Sheriff Rod Hoops told the Riverside Press-Enterprisethat the multi-agency investigation was not related to the pending bankruptcy. City officials surmised that the probe centered on alleged bid-rigging by two employees.

Gwendolyn Waters, acting assistant city manager and a police captain, told the Watchdog that she didn't believe authorities were looking at budget-related crimes. Sure, accounting errors had been made, numbers transposed, but nothing sinister, she said.

"I don't think there was anything secretive or corrupt about it," she said. "There were less than ideal practices and it caught up with us."

Waters said no one should be surprised by San Bernardino's fiscal crisis.

"There were so many warnings over the years," she said, "they weren't heeded anymore."

Simply put, for years the huge bedroom city of 211,674 had milked its reserves and borrowed from other funds because its revenues couldn't keep up with expenditures, Waters said. Now they're worried about making the July payroll.

The Watchdog examined the most recent available audited financial reports for San Bernardino and found plenty of indications that the city was in trouble. For instance, unrestricted net assets -- that is the cash available to backfill the budget - has been in a deficit for at least 10 years, hitting negative $181 million in 2010. The general fund reserve has steadily dwindled, finally running out in 2009-10. And for years, expenditures have outpaced revenues. While the numbers screamed trouble, auditors offered no warning of the financial iceberg looming ahead.

"It's just less-than-best industry practices over a long period of time," Waters said.

"I'm convinced after talking to him that there is nothing, nada, to this," Morris said. "Everybody warned the council (over the years) we were on the edge. Cooking the books? Hell's bells, we knew how close we were. We were operating with nothing in the tank."

While Penman did not mention any names, the Voice of Orange Countypointed to Huntington Beach City Manager Fred Wilson, who was San Bernardino's top administrator for 12 years before coming to Orange County in 2008. Wilson had worked in various positions for San Bernardino for 21 years.

Reached by the Watchdog, Penman would not back off his assertions that the books were cooked, but said he did not suspect Wilson.

We talked with Wilson (pictured left) this week and he aggressively denied his former staff doctored the books -- or even borrowed from workers compensation and liability insurance funds to balance spending, a tactic used by his successors in San Bernardino.

"For all the time I was there, every budget was balanced. There was never borrowing between funds," said Wilson. "What frustrates me is that I'm being dragged into this mess and I had nothing to do with it."

Wilson said San Bernardino had long struggled, but always delivered a balanced budget under his watch. He said the city's march to bankruptcy began after he left in 2008, the same year the recession struck. A depressed real estate market, a 15.7-percent unemployment rate (one of the highest in the state), lackluster consumer spending, increased pension costs and the demise of redevelopment revenue put San Bernardino on the ropes -- not poor budgeting during his tenure, Wilson said.

"We were struggling for years. Balancing the budget was always a challenge, but we got the job done," he said. "They just need to balance their budget."

That is easier said than done.

A budget analysis prepared by city officials in June shows the depths of San Bernardino's dollar dilemma.

San Bernardino has eaten through $19 million in reserves since 2001. The city has a $45 million deficit and, unless something is done, will have a $45million annual shortfall through the next four years. Public safety spending - including pensions - has risen to 73 percent of the operating fund. (Public safety costs were at 80 percent in Vallejo when the city declared bankruptcy in May 2008.)

Employees have been cut by 20 percent over the last three years, while their unions agreed to $10 million annually in concessions. That agreement, however, ends this year, meaning the city has to start paying the $10 million.

Sales tax revenues are falling by $10 million to $16 million a year. Meanwhile accountants found that the general fund surplus was erroneously overstated for the past two fiscal years. Budget planners reported the general fund had a surplus of $2 million in fiscal 2011-12, when it actually had a deficit of $1.1 million.

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